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BSW Bank currently has $800 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent

BSW Bank currently has $800 million in transaction deposits on its balance sheet. The Federal Reserve has currently set the reserve requirement at 6 percent of transaction deposits.

a.

If the Federal Reserve decreases the reserve requirement to 5 percent, show the balance sheet of BSW and the Federal Reserve System just before and after the full effect of the reserve requirement change. Assume BSW withdraws all excess reserves and gives out loans, and that borrowers eventually return all of these funds to BSW in the form of transaction deposits. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial balance sheets

Federal Reserve Bank
Assets Liabilities
_____ (options) Reserve deposits at Fed Transaction deposits Securities Reserve accounts Loans $ __ million ______ (options) Securities Transaction deposits Reserve accounts Loans Reserve deposits at Fed $ million

BSW Bank
Assets Liabilities
______ (options) Reserve deposits at Fed Reserve accounts Securities Loans Transaction deposits $ __ million ______ (options) Reserve deposits at Fed Loans Securities Reserve accounts Transaction deposits $ million
_____ (options) Reserve accounts Securities Transaction deposits Loans Reserve deposits at Fed ___ million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets Liabilities
_____ (options)Reserve deposits at Fed Reserve accounts Loans Transaction deposits Securities $ __ million _____ (options) Loans Reserve accounts Securities Reserve deposits at Fed Transaction deposits $ million

BSW Bank
Assets Liabilities
_____ (options) Securities Transaction deposits Loans Reserve accounts Reserve deposits at Fed $ __ million _____ (options) Loans Reserve deposits at Fed Securities Transaction deposits Reserve accounts $ million
_____ (options) Reserve accounts Loans Securities Reserve deposits at Fed Transaction deposits ___million

b.

Redo part (a) using a 8 percent reserve requirement. (Do not round intermediate calculations. Enter your answers in millions rounded to the nearest dollar amount.)

Panel A: Initial balance sheets

Federal Reserve Bank
Assets Liabilities
______ Reserve deposits at Fed Transaction deposits Reserve accounts Loans Securities $ __ million ______ Securities Reserve accounts Loans Reserve deposits at Fed Transaction deposits $ million

BSW Bank
Assets Liabilities
________ Reserve accounts Securities Reserve deposits at Fed Loans Transaction deposits $ __ million _________ Reserve accounts Transaction deposits Reserve deposits at Fed Securities Loans $ million
_______ Reserve accounts Transaction deposits Loans Securities Reserve deposits at Fed __million

Panel B: Balance sheet after all changes

Federal Reserve Bank
Assets Liabilities
_____ Securities Loans Reserve accounts Transaction deposits Reserve deposits at Fed $ __ million _____ Securities Transaction deposits Loans Reserve accounts Reserve deposits at Fed $ million

BSW Bank
Assets Liabilities
______ Reserve accounts Transaction deposits Reserve deposits at Fed Loans Securities $ __ million _______ Reserve accounts Reserve deposits at Fed Transaction deposits Securities Loans $ million
______ Transaction deposits Reserve accounts Loans Reserve deposits at Fed Securities __ million

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